The Spanish system to provide fair compensation on private copying has been blown up

This is the first of a series of articles on this issue, the coming weeks we will publish several follow-up's discussing the SGAE v PADAWAN case, including a conference given by the honourable Judge Ignacio Sancho Gargallo, not forgetting an interesting administrative case on the national level, and ending with a broad overview of the panorama we are in now.

Spanish IP practitioners and scholars, as well as representatives of collective rights’ management agencies, have been buzzing frantically these days around the system set up to provide a fair compensation to right holders deriving from the limitation of private copying, as two judgments from very different Courts have ruled in one way or another that it didn’t comply with the law.

The coup de grace to the existing system has been a recent Judgment of the administrative section of the Audiencia Nacional which declares void the Ministerial Order

that implemented the system to collect a levy to compensate the private copy, due to defects on the procedure to approve it.

The story however does not start here. It is another chapter in the sour battle between right holders, lead by the collective rights’ management agencies on the one hand and the industry of manufacturing and distributing electronic devices on the other.  A battle that –as any good one- has attracted new participants who despite the fact that had not been invited, have very actively participated both on the ground and around it: internet activists.

We will provide on the following entries an account of what has happened, explaining who is who and the landscape that appears after this battle.

1.- The Spanish system set up to provide fair compensation for private copying

The legal source of this system relies on the Directive 2001/29/EC on the harmonization of certain aspects of copyright and related rights in the information society which allows Member States to apply a limitation on the exclusive right of Reproduction on the case of reproductions made by a natural person for private use and for non commercial ends.

This limitation can only be recognized by national law provided that right holders receive a fair compensation for copies made under such circumstances.

Spanish law already applies such limitation and fair compensation scheme since its modern IP law was adopted back in 1986. This law has been amended during this time in several occasions to adapt to ever evolving technology. One significant amendment was the consolidation of that text by Law 1/1996, April 12, which is currently the legal frame.

The Law 23/2006, July 7 amends law 1/1996 to transpose Directive 2001/29/EC. Article 25 of this law is slightly changed from its original version to adapt the Directive and regulates in full detail the system to provide a fair compensation to the author, which is very similar to the already existing law.

The fair compensation for the right holders is achieved by a fixed amount charged on the selling of equipment, devices and media on the form of a levy for each sale, known in Spain as the “canon”, and as far it applies to mainly digital technology, it's known also as "canon digital". Manufacturers, sellers and importers are the ones liable to pay such levy, cost that is afterwards passed to the final consumer. The milestone of this system are collective right’s management agencies, as they are the exclusive appointees to collect and distribute the amounts resulting from this levy.

The implementation of this system was finally set up by Ministerial Order 1743/2008, July 8 which establishes the list of equipment, devices and media subject to the private copying levy, the amount of this levy for every device and the distribution among the different ways of reproduction (books, audiovisual and phonogram) and thus the distribution among the different collective right’s management agencies representing the interest of the respective right holders. In other words, it puts the figures to the rules.

The system is very simple and cost effective for collective management agencies as neither in the Law nor in the Order is there a reference to the destination of such equipment: the levy applies to any sell of the devices, regardless the buyer is a natural or legal person and regardless the private or professional use this person buys that for.

Nevertheless this simplicity and cost effectiveness has proved to be its major burden when a shop – run by PADAWAN, S.L.- devoted to the selling of such electronic items opposed the payment of the levy and the collective management agency apointed to collect this levy, Sociedad General de Autores y Editores (SGAE) sued the shop, in what has been known SGAE v PADAWAN

In my next post I will discuss this case.